Freemium Customer Lifecycle – Five Questions To Ask Before You Launch

Posted on by Rags Srinivasan

Follow me on Twitter: @pricingright

Every time I have a conversation with someone who supports and strongly believes in a freemium model, I hear two main revenue streams attributed to freemium customers: [tweetmeme http://klck.me/Agx source=”pricingright”]

  1. Initially customers do not know they need this product but when then start using it they fall in love with it and upgrade from free version to paid version.
  2. Customers that adopt early and fall in love generate considerable WoM marketing for the product

Since there are two levels (o and 1) for these two states, any user can be in any one of four following states.

After a few months, anyone continuing to use the service and not generating any WOM revenue is a freeloader. Only when your users start paying they become your customers. When freeloaders generate WOM marketing (preferably revenue) they become do-gooders. When users become customers and generate WOM marketing, they are your apostles. These state transitions and triggers are shown in the next image.

Here  are my questions to you:

  1. Do you know what percentage of your users will end up in each state?
  2. Do you know how long anyone will spend in the freeloader state?
  3. Do you know how you can facilitate the triggers out of Freeloaders state?
  4. Do you have a model for WoM marketing revenue that a Do-Gooder will generate?
  5. Do you know how to keep customers and apostles in their states without sliding back?

If the answer to any of these questions is

  • anything that is not expressed in numbers (I will take 90% confidence numbers )
  • not specific to your business
  • based on cost arguments
  • something that uses Evernote or Dropbox numbers

Are you sure you should be adopting this model, or even undertaking this venture?

Now my selling points:

– what is the information worth to you before you invest resources?

– what if I told you I have a predictive model for finding the probability distribution of where a user will end up?

14 thoughts on “Freemium Customer Lifecycle – Five Questions To Ask Before You Launch”

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  3. Mary
    Drop a note through the contact link if you are serious about a conversation. My model is for freemium startups that have garnered large number of customers but have low percentage converting to paid version. It also requires data that some may not collect.
    For most other cases, the solutions are product version definition and pricing which I am happy to talk about.
    -rags

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  4. Hi,

    I think your blog is very informative.

    – what if I told you I have a predictive model for finding the probability distribution of where a user will end up?

    I would want to know this but I am not sure I can afford you. I am a start-up entrepreneur and so I would like to know what my options are in regards to what you have to sell. 🙂

    Thank you again,
    Mary

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  6. Dean
    When they sign up, people are not going to see the future benefit or not going to see the magnitude of it. So if you are considering “credit back” as a way to reduce resistance to sign up, it will not have significant effect. People may feel they are not getting value even when they go on disastrous dates. But even one good date may convince them they are getting value from the site.
    Match.com had a great model, “if you do not find your special someone in 6 months, we will give you six more free” https://iterativepath.wordpress.com/2009/05/25/pricing-a-service-with-limited-customer-lifetime/

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  7. Interesting! Just came across this, while researching my own proposed “reverse freemium” model – I’m running a dating site, so I like charging a customer upfront, to help eliminate bogus accounts… But, people really don’t like spending money for online dating and getting no (desired) results, so I’m planning to give credit back to each user for each date they attend and give feedback on… Basically, anyone who goes on 1 date per week average could use our site for free ongoing. People who don’t go on any dates pay the standard rate, and people who go on fewer dates pay something in between. If it’s $20/month, for example, then a “three date per month” user would pay $5/month.

    I’m curious about negative impacts of this model, aside from the upfront loss of a huge number of potential trial members who won’t pay before using no matter what.

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  8. Pingback: Say you want 10% increase in customers in your freemium startup « Iterative Path
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  12. That will be nice. (And add your authorship too!)
    My email is with the profile of this comment I believe? (Would hate to leave it here for the spammers 😉

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